Globalisation of the renminbi – a key long-term goal for Beijing – is at its lowest point in three years as offshore dealing in the Chinese currency continues to shrink.
Standard Chartered’s analysts track offshore activity involving the currency, and their measure fell in February to its weakest point since March 2014. The 6.4 per cent fall in the bank’s Renminbi Globalisation Index was also the largest monthly drop since it began compiling the index.
The fall comes as China has worked to stabilise its currency since unexpected volatility in January 2016 triggered global market turmoil. This year, both the offshore and and onshore rates have traded in relatively tight ranges, which dealers believe has been engineered by the People’s Bank of China.
Crucially for China’s stability efforts, the offshore rate has also mostly traded at a stronger level against the dollar than its onshore cousin – a signalling trick designed to discourage the outflow pressure that built when a weaker offshore rate implied the currency would depreciate further.
Kelvin Lau, strategist at Standard Chartered, said the latest drop “adds conviction to our longstanding view that renminbi stability comes at the expense of renminbi internationalisation. China achieved its first capital inflows in 34 months in February, but mainly because of less outward direct investment and stricter capital controls on outflows.”
A fall in renminbi activity in Hong Kong was the biggest single contributor to the overall drop in activity, Standard Chartered said. Hong Kong is by far the currency’s largest offshore centre and renminbi deposits in the city have fallen by two-fifths in the past two years.
When it comes to Nigeria’s currency, mind the gap, again: the spread between the official and parallel market rates for the naira is widening once more.
During a more than two-week run, the naira strengthened to a six-month high of 390 per dollar on the black market – close to one of the multiple official exchange rates, but still far off the interbank rate of around 305 to the dollar.
However, the naira is weakening once more on the black market, slipping below 400 to the dollar, to 405 to the dollar on Monday, according to traders.
Chronic dollar shortages in Nigeria began after oil prices crashed in 2014, worsened as the central bank restricted supplies of hard currency, and are unlikely to end any time soon.
In the absence of adequate supplies of dollars in the official market, businesses and individuals have been forced to buy hard currency on the black market, stoking demand there and eventually weakening the naira to a record low of 520 in February. Analysts said the gap between the official rate of just over 300 to the dollar and the black market one indicated the scale of unmet demand for hard currency in Africa’s most populous nation.